Author Topic: upside down on a car loan: to sell or keep?  (Read 5516 times)

b

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upside down on a car loan: to sell or keep?
« on: October 06, 2015, 01:02:21 PM »
My husband & I purchased our 2014 Kia Forte back in March 2014.  At the time we had two junky cars that kept breaking down and needing repairs – and we both had a 50 – 75 minute commute, so it was a big problem. Somehow we convinced ourselves that to avoid breakdowns and problems, we should get a new car.  So we did.

Looking back, I wish we had just taken a 8,000 loan out and bought a craigslist car.

Fast forward to now, and our lives & jobs are completely different.  We moved 4 hours away for a new job and now my husband commutes to work 35 minutes 2 days/week and 15 minutes 3 days/week and I work at home.  We still need 2 cars (family lives 30 minutes away and I'm looking to get a job out of the house).  We refinanced the dealership loan with our credit union this January and are saving money on interest now, but our loan is still $18,000. Based on websites like kbb and nadaguides.com, our car is only valued at 13K.

We can afford the payments, but we’re thinking of starting a family and I’d like to get our finances in order before that happens.  In a way we can't afford the payments because we aren't saving near enough.. Our savings account really needs some attention (aka money) and I keep dwelling on how saving $300/month would be so helpful... alas, it's going to the car loan.

The options seem to be:
1. Keep car and make $340 payments every month for about 4.25 more years.  At that time if we sold it, we would probably get at least 8K I would think (maybe I'm wrong)
2. Sell car for what it’s worth and have a $3500 - 5000 loan (not sure how much we'd get for car)… probably can pay it off in 1 - 2 years.  Would also need to take a loan out for a new (to us) car… so $5,000 for that…

Are there more options?  Any advice is appreciated!

The_path_less_taken

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Re: upside down on a car loan: to sell or keep?
« Reply #1 on: October 06, 2015, 01:47:30 PM »
If there is no pre-payment penalty on the car loan, I'd either try and pay it off quicker than the regular term (if it will save you interest).

Or I'd see what I could get with a smoking hot ad on craigslist....if you're funny/creative enough you can get it to go viral and sell that puppy asap. "This car was only driven by small green aliens from Alpha Centuri, and one distraught mother of an aged iguana who didn't like to travel. It will NEVER let you down! Had great tires, was never smoked in, and has never been used to transport live frogs."

(I'd also put in a 'straight' ad for it, stagger the ads so they're a few pages apart on "by owner only" section.)

The most difficult, time consuming, and chance-ridden option is to wait for the last day of the month (or preferably year) and swap it at a dealership LATE IN THE DAY.

They need to sell "one more car" to make the boss happy. If you are even a half assed negotiator you should be able to acquire something at an ok rate by waiting until they are under the gun to make a deal, versus you being under the gun.

The cheapest method of this is to open a few free email accounts FROM WORK (or the library) and do online queries at a few local places. Do NOT give your whole name OR phone number.

"I can't take calls at work and I am buying a car TOMORROW, someplace. I need your "OUT THE DOOR, ALL IN" price on stock #1234. Run your 4-square, talk to your manager, do whatever: but I am buying a car. And I have a xxx trade in with xxx miles on it."

If you call them they will pull your # from caller ID, or if you email them from your home computer they will hound you for the rest of your life. Seriously: like, ten years later you'll get bullshit emails. So use a faux account and don't call---and call from work or pay phone--- until the "is this vehicle you emailed me about still on the lot? What is your best price OTD today?"

Good luck.

Gone Fishing

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Re: upside down on a car loan: to sell or keep?
« Reply #2 on: October 06, 2015, 02:10:06 PM »
The damage is done, it happened when you drove the car off the lot.  As it is, you have a car that is pretty good on gas and has a 100,000 mile warranty.  It should last you another 15 years+ with basic maintenance.  I say stick with it.  If your rate is sub 5%, I wouldn't even prepay the loan, but instead build your investments or pay off higher rate debt. 

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Re: upside down on a car loan: to sell or keep?
« Reply #3 on: October 07, 2015, 09:04:14 AM »
... The options seem to be:
1. Keep car and make $340 payments every month for about 4.25 more years.  At that time if we sold it, we would probably get at least 8K I would think (maybe I'm wrong)
2. Sell car for what it’s worth and have a $3500 - 5000 loan (not sure how much we'd get for car)… probably can pay it off in 1 - 2 years.  Would also need to take a loan out for a new (to us) car… so $5,000 for that…

Are there more options?  Any advice is appreciated!

Based on the above numbers and resale value assumptions, Option 1 (finishing the payments) results in a cash outflow of $17,340.  If you are correct about the future $8000 resale value, you will be out $9340 under this Option 1.  On the other hand, under Option 2 (selling now), present resale value is $13K and your loan balance is $18K, which leaves you out $5000.

If you sell now, you would seem to be able to avoid being out $4340.  And you could use that $4340 to fund a more reasonable vehicle purchase.

Good luck.


MM_MG

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Re: upside down on a car loan: to sell or keep?
« Reply #4 on: October 07, 2015, 09:22:26 AM »
Maybe I missed something (read it quickly), but if you sell the car, at least to a private party, you will need to pay off your note at the same time not in 1-2 years.

Gone Fishing

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Re: upside down on a car loan: to sell or keep?
« Reply #5 on: October 07, 2015, 09:40:20 AM »

If you sell now, you would seem to be able to avoid being out $4340.  And you could use that $4340 to fund a more reasonable vehicle purchase.


The only problems with this are that you will probably need another car in 5-6 years vs. having one that is paid off and still good to go for another 8-10 years.  Plus you would miss out on what should be 100,000 repair free miles (other than consumables such as oil, tires, and brakes), which is why you bought the new car in the first place. Also consider the terms on a $5k unsecured loan and a $4-5k older car loan which are likely to carry higher rates and shorter terms than your current loan.  Your payment could end up being nearly the same!     

Like I said, the vehicle you have is fairly mustachian, if it was a huge honking SUV, we would be having a different conversation.  You have already taken the big hit on the depreciation, there is nothing you can do about it.  Chalk it up to lessons learned and move on.   


Gone Fishing

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Re: upside down on a car loan: to sell or keep?
« Reply #6 on: October 07, 2015, 09:42:10 AM »
Maybe I missed something (read it quickly), but if you sell the car, at least to a private party, you will need to pay off your note at the same time not in 1-2 years.

The OP would need to get an unsecured note (unless they are able/willing to get a HELOC or similar) to pay the note down to the selling price with the sales proceeds paying off the remainder.

AZDude

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Re: upside down on a car loan: to sell or keep?
« Reply #7 on: October 07, 2015, 10:01:26 AM »
I would vote keep the car. You overpaid for a car, but that is a sunk cost now. A little over four years of $300 payments sucks, but take the long view of this being a car you can have for the next 10+ years. That means four years of $300, and then six years of $0.

You can try listing it for $18000, you never know. Some dumbass might pay that much rationalizing that a dealer would charge the same amount. Or maybe you can get $16K or $17K and just pay the rest of the balance in cash. This will likely cost you little or nothing other than some hassle.

Matt_D

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Re: upside down on a car loan: to sell or keep?
« Reply #8 on: October 07, 2015, 11:07:22 AM »
Throwing my vote in with the "pay it down early and move on" crowd. But part of that is because I hate car shopping...

Important to remember that even if you get a good Craigslist car, you're not dropping to $0 from your current $300. That only happens if you totally get rid of the car. Plus... there are some advantages you have right now: warranty, knowing the maintenance history, etc. You lose all that with a used car. I'd almost-never advocate buying new, but the deed is done and you've already lost the money.

Also note: If I was shopping for a new-used car and saw something only a little over a year old, I'd wonder what was wrong with it and wouldn't be prepared to spend top dollar. KBB is probably pretty accurate on what you'll get for it.

Cassie

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Re: upside down on a car loan: to sell or keep?
« Reply #9 on: October 07, 2015, 11:14:21 AM »
I would keep the car & if you sell you will need to pay the difference immediately to the place you took out the loan.  As others have mentioned it is reliable & should last a long time. Just don't do this again.

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Re: upside down on a car loan: to sell or keep?
« Reply #10 on: October 09, 2015, 09:39:57 AM »
I would keep the car & if you sell you will need to pay the difference immediately to the place you took out the loan.  As others have mentioned it is reliable & should last a long time. Just don't do this again.

I still say the OP would be ahead over $4000 by selling that present car now.  Maybe it would help if a dissenter would show some calculations of their own.  :D

Matt_D

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Re: upside down on a car loan: to sell or keep?
« Reply #11 on: October 09, 2015, 10:57:08 AM »
I would keep the car & if you sell you will need to pay the difference immediately to the place you took out the loan.  As others have mentioned it is reliable & should last a long time. Just don't do this again.

I still say the OP would be ahead over $4000 by selling that present car now.  Maybe it would help if a dissenter would show some calculations of their own.  :D

I think your calculations as they stand are correct, I just don't know that they take everything into account looking forward. Current car has warranty to 100k and presumably will last a good bit beyond that if they keep it til end-of-life (I didn't see a compelling reason not to?). Buying a "new" car for around $5k will result in a car that is more advanced in miles/years (so will need some more TLC), and will presumably go kaput sooner than the current car. Basically, I see that extra $4k as buying them additional years/miles at the end of the life of the car - so the payoff is in the future rather than now.

Obviously it would have been better to buy used from the start... but then we wouldn't be having this discussion :)

Tyson

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Re: upside down on a car loan: to sell or keep?
« Reply #12 on: October 09, 2015, 11:10:22 AM »
Agree with the others - keep it, you took the biggest hit when you bought it.  And treat it as a "lesson learned".

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Re: upside down on a car loan: to sell or keep?
« Reply #13 on: October 09, 2015, 12:06:03 PM »
I still say the OP would be ahead over $4000 by selling that present car now.  Maybe it would help if a dissenter would show some calculations of their own.  :D

Challenge accepted!

I like to think of my vehicle expense in terms of cost per year.  Let's say the OP's current vehicle will last another 15 years.  Over the next 15 years, their annual cost of ownership in both scenarios might look something like the following:

Keep the Kia:
Loan Principal:                                                                $18,000
Estimated interest @4% for 4.25 years:                                $800
Estimated Repairs for years 10-15 $300*5                          $1,500
Additional Insurance Expense required for loan $100*4           $400

Total                                                                               $20,700
Cost per year                                                                     $1,380

Sell the Kia:
Loss on sale:                                                                    $5,000
Interest on note required for payoff @9% 36mo                     $675
Cost to purchase used car #1                                             $5,000
Interest on used car @6%  48 mo                                          $480
Repairs on used car #1 $300*7.5                                        $2,250
Cost to purchase used car #2                                              $5,000
Repairs on used car #2 $300*7.5                                        $2,250

Total                                                                                 $20,655
Cost per year                                                                     $1,377

There are some estimations here, but it is not too much of a stretch to say it is a wash, plus it avoids the hassle of buying and selling 3 cars and many repairs.

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Re: upside down on a car loan: to sell or keep?
« Reply #14 on: October 09, 2015, 01:56:56 PM »
I still say the OP would be ahead over $4000 by selling that present car now.  Maybe it would help if a dissenter would show some calculations of their own.  :D

Challenge accepted!

I like to think of my vehicle expense in terms of cost per year.  Let's say the OP's current vehicle will last another 15 years.  Over the next 15 years, their annual cost of ownership in both scenarios might look something like the following:

Keep the Kia:
Loan Principal:                                                                $18,000
Estimated interest @4% for 4.25 years:                                $800
Estimated Repairs for years 10-15 $300*5                          $1,500
Additional Insurance Expense required for loan $100*4           $400

Total                                                                               $20,700
Cost per year                                                                     $1,380

Sell the Kia:
Loss on sale:                                                                    $5,000
Interest on note required for payoff @9% 36mo                     $675
Cost to purchase used car #1                                             $5,000
Interest on used car @6%  48 mo                                          $480
Repairs on used car #1 $300*7.5                                        $2,250
Cost to purchase used car #2                                              $5,000
Repairs on used car #2 $300*7.5                                        $2,250

Total                                                                                 $20,655
Cost per year                                                                     $1,377

There are some estimations here, but it is not too much of a stretch to say it is a wash, plus it avoids the hassle of buying and selling 3 cars and many repairs.

Nice work, I was too lazy to go into the detail :)

jms493

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Re: upside down on a car loan: to sell or keep?
« Reply #15 on: October 09, 2015, 02:08:00 PM »
Pay it off as fast as you can to free up the cash flow and keep it for a long time.  Make sure you maintain/service it.

 

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